Speaking to The Insurer TV as part of its Close Quarter series, Basi said: “If you look at the 10-year picture at the end of 2021, values have doubled and premiums haven’t.

“There is a lag in correction, none of which is going to be addressed by a 10 percent increase in price just because of inflation,” he added.

Rising inflation, driven in part by the many headwinds facing the (re)insurance industry globally, is the focus of a new Russell Group report, “What’s Inflation Got To Do With It? Understanding the impact of rising inflation on the (re)insurance market”.

According to the report, inflation is now the number one issue facing consumers, businesses and governments, with the US, UK and Europe all grappling with high levels of inflation not seen since the 1980s.

UK-inflation-figures

A combination of factors, ranging from the Covid-19 pandemic to Brexit and the Russia-Ukraine conflict, have all played a role in pushing inflation levels up.

Rate rises v underinsurance

It is essential for (re)insurers to understand the effect inflation-led headwinds could have on their own losses, Basi noted.

But while the industry focuses on pricing and loss reduction, more expensive (re)insurance could lead to increased underinsurance.

Basi explained that the risk of underinsurance would feed back to the customer. For instance, “the duality of increasing labour costs and increasing costs of supply” means the policyholder is exposed to both the build cost and the interruption element.

“So in the end, you’re looking at a problem for the business. If you’re talking about a corporate business, there in essence is a greater need to understand the problematic effect of inflation on not just property values, but costs in general, but also of business interruption and the labour that might be required to repair things,” he warned.

But there are ways the industry can prevent this, he added, especially on the primary side.

“From an insurer’s perspective, it’s on the front foot – so really, communication of the risk of underinsurance [is a key step],” he noted.

The report further supports Basi’s position, noting that explaining the risk of insufficient coverage is essential to avoiding this problem. It suggests that a more holistic approach to understanding the risks of underinsurance should prevail over the focus on the price of the insurance premium.

“All of those [problematic effects of inflation] have to be borne and understood and weighed against the coverage that’s being sought because that might be 25 percent different to what you’ve been used to in the past,” Basi concluded.

Russell Group’s white paper covering inflation can be accessed here.

In this eight-minute interview, Basi speaks about the following topics:

  • Why UK inflation is so high
  • How the industry is being impacted by inflation
  • The threats of underinsurance
  • How (re)insurers and corporates can best leverage the use of data in their collaboration